Facts of the Case

The Assessing Officer (AO) levied a penalty of ₹10,94,657 under Section 271(1)(c) of the Income Tax Act, 1961, on KAS Movie Pvt Ltd for allegedly claiming an incorrect deduction of ₹29,78,659 under Section 80HHF. The AO observed that the company had not exported any software, only provided services of technicians for shooting by foreign clients. The deduction was disallowed, and penalty proceedings were initiated. The CIT(A) deleted the penalty, a decision later upheld by the Income Tax Appellate Tribunal.

Issues Involved

  1. Whether the Income Tax Appellate Tribunal erred in deleting the penalty under Section 271(1)(c) for inaccurate particulars of income.
  2. Whether the assessee’s claim under Section 80HHF was valid despite non-export of software.

Petitioner’s Arguments (Revenue)

  • The assessee claimed deduction under Section 80HHF without fulfilling export conditions, thus furnishing inaccurate particulars of income.
  • Penalty under Section 271(1)(c) is mandatory where income is concealed or inaccurate particulars are filed.
  • Reliance on Supreme Court precedents suggesting strict liability under Section 271(1)(c).

Respondent’s Arguments (Assessee)

  • The deduction claim was bona fide and fully disclosed in the income tax return.
  • The claim was audited and supported by a qualified CA.
  • No mens rea or deliberate concealment existed; the disallowance was purely legal.
  • Reliance on CIT vs Reliance Petro Products (2010) 322 ITR 158 and Sea Pearl Industries vs CIT, 247 ITR 578.

Court Order / Findings

  • The High Court upheld the deletion of penalty by CIT(A) and Tribunal.
  • The Court held that the assessee had made a bona fide claim with full disclosure, audited support, and without collusion or dishonesty.
  • Mens rea is not required for civil penalties under Section 271(1)(c), but where two views are possible and claim is made in good faith, penalty should not be imposed.
  • The appeal by the Revenue was dismissed.

Important Clarifications

  • Ownership of goods is not essential for claiming deduction under Section 80HHF.
  • Bona fide claims with full disclosure and professional advice cannot attract penalties merely due to subsequent disallowance.
  • Penalties under Section 271(1)(c) are civil in nature, based on strict liability, but discretion exists in cases of bona fide claims.

Sections Involved

  • Section 80HHF – Deduction for profits from export of software.
  • Section 271(1)(c) – Penalty for concealment of income or furnishing inaccurate particulars.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2011:DHC:5809-DB/AKS18112011ITA7932011.pdf

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